Thursday, March 20, 2008
Great CNBC Article about the Credit Crisis
"Can’t Grasp Credit Crisis? Join the Club"
For those of us who are not financial experts, this article published by CNBC goes over the entire Credit Crisis, A to Z, start to finish. Read the article here.
LK
Wednesday, January 16, 2008
THE "R" WORD
THE "R" WORD
By Ron Ojeda
OK, the writing is on the wall. It appears 2008 will be a sluggish year for the overall U.S. economy. Last Friday capped off the worst seven trading day start to the new year since 1990 when Saddam Hussein’s army was still getting settled in Kuwait. Economists across the financial industry have shifted their views on the possibility of a recession past the 50% mark and acknowledged it as the more likely outcome going into 2008. The word “Recession” brings up images of closed businesses and unemployment but let’s clarify the definition of recession.
An economy that is in a recession has experienced at least TWO quarters of contraction by measure of the GDP. That’s correct, two. This is not to say it is not serious, especially to those families and individuals who are directly impacted by it. However, maintaining even a medium-term view, 2 to 3 years, allows all of us to focus on the forest instead of the trees.
The recession is being ushered in by three primary factors. The labor market which, as of last week gave us the first empirical evidence of a recession, two quarters of contraction. The January 3rd employment report for December 2007 showed an *” outright decline in private sector payroll jobs and a substantial increase in the unemployment rate. Since World War II any increase in the three month average of the unemployment rate by more than one third of a percentage point has been associated with recession.”
While this seems significant, the more worrisome factor is the apparent weakening of consumer spending. Two thirds of Gross Domestic Product (GDP) is consumer spending and has been watched carefully over the past four years for signs of weakness. Quarter after quarter, year after year, the American consumer has not disappointed analysts and economists. Despite a negative personal savings rate, a deterioration in real wages and increasing personal debt, the consumer has continued to “go to the well”. In the last several years liquidity has been dysfunctionally provided by the rise in the values of their homes and the financial industry’s willingness to allow them to tap into what has historically been an important savings tool for Americans.
Lastly, business activity, from capital expenditures to new hires, could be soft in 2008. The Institute for Supply Management (ISM) monthly index moved well below 50. Anything below 50 suggests slowing activity in the manufacturing sector.
On the positive side there are several factors which should have dampening effect on the length of any possible recession. The Administration has announced a $70 to $100 billion stimulus package, details to come later this week. The biggest caveat in that plan will be the test of legislator’s discipline to not attach all manner of long-term “pork” expenditures to the needed short-term stimulus package lest those long-term commitments provide an inflationary effect on the economy.
Another positive factor will be increased exports because of the continuing saga of the weakening U.S. dollar. With foreign central banks looking to raise their benchmark rates while the U.S. Central Bank is being compelled to cut rates, that trend will most certainly continue. But this cannot be relied upon as a substitution for the U.S. consumer. Despite our perception of their size, three major trade partners, China, Russia and India have combined Gross Domestic Product of only $4.6 Trillion. According to the U.S. Bureau of Labor Standards, consumer spending accounts for 60% of the $13.2 Trillion U.S. economy or $8 Trillion.
Last but not least is the expected continued cuts in rates by the FED. The fact that they are coming is a foregone conclusion. Yesterday’s Producer Price Index (PPI) showed wholesale prices fell 0.1% after a 3.2% surge in November, Today’s Consumer Price Index (CPI) number should convince the Fed that concerns about inflation should be put on the backburner for now and managing the economy through this rough patch should be the priority.
* January 9th, U.S. Daily Financial Market Commentary (Goldman Sachs)
Wednesday, November 28, 2007
To Catch a Dropping Knife
Two dramatic days in the stock market have been driven by renewed investor confidence.
1) 90% of companies in the S&P 500 have reported earnings and those earnings have shown an 8.5% decline in earnings versus the 3rd quarter of 2006 in which there was an 11.6% year over year gain. The worst year over year comparison since the 4th quarter 2001. Yes…2001.
2) The Fed’s Beige Book report out today showed slowing economic growth in October.
3) Orders for durable goods such as cars, computers and appliances fell .5% in October following a revised 1.4% decline for September. This, however, was in line with economic forecasts.
So, now what? The fact is that all those negative numbers are a snapshot in the rearview mirror. The near term future will likely bring more negative news as the Credit Crunch brought about by the Sub-prime debacle plays itself out over the next 12-24 months and individual investors will, as they always have, watch the “big money” to give them direction as to the next move up in the economic cycle. Granted, the best and brightest are a little more tarnished than in the past, but for better or worse they still run the game.
The $7.5 Billion investment in Citigroup by foreign investors is not their effort to “play the stock market.” They are not trying to take an educated risk on the direction of the stock market in the next 6 months. Additionally, these folks are certainly not “day traders”. But, they do know a bargain. An investment in Citigroup is an asset play that spans stocks, bonds and real estate. It may get a little uglier but even they cannot pick a bottom. There's a saying in the investment industry... picking a market bottom "is like catching a dropping knife." Who needs that? One thing is for sure, they would rather be in the game than standing on the sidelines. Can’t make money there… can you?
By: Ron Ojeda, Capital Development, Blue Moon Capital, LLCWednesday, November 21, 2007
Invesco to move HQ to Atlanta
Invesco is planning to combine its HQ and Atlanta office into one location... the new Two Peachtree Pointe in Midtown Atlanta.
Thursday, November 1, 2007
Survey: 65% of IRA holders consider real estate as an investment for retirement
The article:
"Despite a slow national real estate market, a recent survey showed real estate is the No. 1 choice for self-directed investors.
Washington-based Guidant Financial Group conducted a survey of nearly 1,000 self-directed IRA holders and found that nearly 65 percent of the respondents said they were considering property as an investment for their retirement savings.
Nearly 60 percent chose rental property, more than 36 percent chose foreclosures and preforeclosures and more than 28 percent chose raw land.
"These numbers provide valuable insight into the minds of investors," said David Nilssen, president and CEO of Guidant.
"It demonstrates that, although the real estate market is experiencing a downturn, many still continue to view real estate as a secure and viable means to growing their nest egg."
Other choices, according to the survey, included: tax liens and deeds, 29 percent; business/franchise, 22.8 percent; hard money lending, 22 percent; notes, 19.3 percent; vacation property, 19 percent; foreign investments, 10.4 percent; and securities, 7 percent."
Monday, September 17, 2007
Alan Greenspan on 60 Minutes: Housing Market and Economic Forecast
Greenspan stated "... we're gonna get through this particular credit crunch... we always do..."
This is a reinforcement that the real estate bubble hasn't burst... it's just taking a well-deserved break.
An innovative vision: Residential Rental Real Estate as an Asset Class (RRRAAC)
"Well I had always been fond of real estate, and i saw it was an opportunity to do something in the industry that nobody has ever done before... and that is create residential rental real estate as an asset class, which up until today nobody has ever realized that it has the potential that it does today primarily because the industry considers residential rental real estate as cumbersome, awkward, hard to manage but we look at a process whereby we can make it manageable..."
Blue Moon Capital Overview on YouTube